8.1

Static Budget versus Flexible Budget

The production supervisor of the Machining Department for Hagerstown Company agreed to the following monthly static budget for the upcoming year:

Hagerstown Company Machining Department Monthly Production Budget
Wages	$384,000
Utilities	17,000
Depreciation	29,000
Total	$430,000

The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows:

	Amount Spent		Units Produced
May	$405,000		88,000
June	385,000		80,000
July	366,000		72,000

The Machining Department supervisor has been very pleased with this performance because actual expenditures for MayJuly have been significantly less than the monthly static budget of 430,000. However, the plant manager believes that the budget should not remain fixed for every month but should flex or adjust to the volume of work that is produced in the Machining Department. Additional budget information for the Machining Department is as follows:

Wages per hour	$20.00
Utility cost per direct labor hour	$0.90
Direct labor hours per unit	0.20
Planned monthly unit production	96,000

a. Prepare a flexible budget for the actual units produced for May, June, and July in the Machining Department. Assume depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places.

Hagerstown Company
Machining Department Budget
For the Three Months Ending July 31
	May	June	July
Units of production	88,000	80,000	72,000
Wages	$____	$____	$____
Utilities	____	____	____
Depreciation	____	____	____
Total	$____	$____	$____
Supporting calculations:
Units of production	88,000	80,000	72,000
Hours per unit	x ____	x ____	x ____
Total hours of production	____	___	____
Wages per hour	x $___	x $____	x $____
Total wages	$____	$____	$____
Total hours of production	____	____	___
Utility costs per hour	x $____	x $____	x $____
Total utilities	$____	$____	$____

b. Compare the flexible budget with the actual expenditures for the first three months.

	May	June	July
Total flexible budget	$____	$____	$____
Actual cost	_____	_____	_____
Excess of actual cost over budget	$___	$____	$____